Module: | MODULE B: RISK MANAGEMENT
Q374: Scenario: XYZ Bank is restructuring its credit department to comply with risk management frameworks. The bank proposes integrating its loan origination team with the credit risk assessment team to speed up the approval process for large corporate exposures. Based on RBI guidelines, consider the following statements regarding the correct regulatory actions:
1. The integration is permitted provided the Board of Directors passes a special resolution.
2. The Credit Risk Management Department must operate completely independently of the credit sanctioning units.
3. The Chief Risk Officer should directly report to the Head of Corporate Lending to ensure seamless operations.
Which of the statements given above is/are correct?
2. The Credit Risk Management Department must operate completely independently of the credit sanctioning units.
3. The Chief Risk Officer should directly report to the Head of Corporate Lending to ensure seamless operations.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statement 2 is correct: As per RBI and Basel norms, the Credit Risk Management Department (CRMD) must enforce strict operational independence from the credit sanctioning/business units.
This ensures that the risk assessment is unbiased and free from business pressure.
Statement 1 is incorrect: Integration of risk assessment with loan origination explicitly violates the core principle of segregation of duties and conflict of interest.
A Board resolution cannot override fundamental regulatory risk frameworks.
Statement 3 is incorrect: The Chief Risk Officer (CRO) must have an independent reporting line, typically reporting directly to the Risk Management Committee of the Board (RMCB) or the MD/CEO, never to the Head of Lending or business targets.
This ensures that the risk assessment is unbiased and free from business pressure.
Statement 1 is incorrect: Integration of risk assessment with loan origination explicitly violates the core principle of segregation of duties and conflict of interest.
A Board resolution cannot override fundamental regulatory risk frameworks.
Statement 3 is incorrect: The Chief Risk Officer (CRO) must have an independent reporting line, typically reporting directly to the Risk Management Committee of the Board (RMCB) or the MD/CEO, never to the Head of Lending or business targets.